Pros and Cons of Using a Personal Loan to Pay Off Credit Card Debt

Pros and cons of personal loans to pay off credit card debt
BY Rebecca Lake
Jan 23, 2023
Key Takeaways:
  • Consolidating credit card debts could help you to pay them off faster.
  • Personal loans may offer lower interest rates than credit cards.
  • Using a personal loan for debt consolidation could backfire if you're racking up new debt.

Credit cards can be convenient for making purchases, but they can also be an expensive way to borrow if you're stuck with a high APR. Consolidating credit card balances with a personal loan could help you to pay back what you owe faster, while potentially saving money on interest. 

With a personal loan you can borrow a lump sum for almost any purpose, including debt consolidation. You could use a personal loan to pay off all of your credit cards, then make one monthly payment to the loan going forward. 

Wondering if a credit card debt consolidation loan might be right for you? Weighing the pros and cons can help you decide if using a personal loan to pay off credit card bills makes sense. 

Summary: Pros and cons of using a personal loan to pay off credit cards


  • Potentially save money on interest.

  • Interest rate won’t change during the life of the loan.

  • Streamline monthly payments for easier budgeting.

  • Potentially lower total monthly payment.

  • Replacing revolving debt with installment debt could improve your credit scores. 


  • Lower rates are not guaranteed. 

  • Fees may add to the cost of the loan.

  • A longer loan repayment term could cost more in interest.

  • Charging up your credit cards again after you pay them off with a loan could make your debt situation worse.

5 benefits of using personal loans to pay off credit cards

Taking out a personal loan to pay off credit card bills can offer several advantages. If you're considering this option for paying off debt, it's important to consider how it might benefit your financial situation. 

1. Lower interest rate

Taking out a personal loan to consolidate credit cards could save you money if the loan has a lower interest rate than the average rate you're paying on your cards. Personal loan interest rates tend to average 10-30%, while credit card interest rates tend to run 17-36%. Someone with great credit and 18-26% APR credit cards might qualify for a 10-14% personal loan.

How much you could save will depend on the rate you qualify for and the loan repayment term.

Your credit scores can influence the rate you'll pay on a personal loan. The better your score, the lower your rate is likely to be. 

2. No interest rate surprises

Personal loans typically have fixed interest rates. That means your rate stays the same over the life of the loan.

Credit cards, on the other hand, usually have variable rates. When rates go up, you’ll pay more interest if you carry a balance. Choosing a fixed-rate personal loan to pay off credit card debt means you don't have to worry about rate hikes.

3. Simplify your payments

Keeping up with multiple credit card payments each month can be a headache. If a bill happens to slip through the cracks, you could end up with a late payment fee, not to mention damage to your credit score. 

Consolidating credit card debts with a personal loan can make budgeting easier since you'll have just one payment. You can even schedule an automatic payment each month, eliminating the stress of tracking different due dates. 

4. Lower total monthly payment

The monthly payment on your personal loan might be lower than the total of the minimum monthly payments you have to make on all of your credit cards. That's something you might appreciate if you're hoping to create some wiggle room in your budget. 

ur monthly payments are based on how much you borrow, your interest rate and the loan repayment term. The longer the term, the lower the payment is likely to be. 

5. Improve your credit scores

The second most important factor in your credit score is credit utilization (the first is your payment history). Utilization is your revolving debt balances compared to your credit limits. If you have a $500 balance on a card with a $1,000 limit, your utilization is 50%. Utilization is calculated for each card, and overall.

Utilization does not take into account your balances on installment debt. For instance, if you have a car loan, it’s not reflected in your utilization ratio.

Consolidating credit cards with a personal loan could improve your credit utilization if you leave at least one card open but don't make any new charges. People with the highest credit scores tend to have a utlization ratio between zero and 10%. A low utilization ratio, along with consistently making your loan payments on time, could give your credit scores a boost over the long term. 

4 drawbacks of using personal loans to pay off credit card debt

Using a personal loan to pay off credit cards isn’t right for everyone. There are some potential disadvantages to consider before moving ahead with a debt consolidation loan. 

1. Lower rates are not guaranteed

Lenders reserve the best interest rates for the most creditworthy borrowers. If your credit score is not good or excellent, it's possible that you might end up with a rate that's comparable to what you're already paying to your credit cards. 

2. Fees

Lenders can charge a variety of personal loan fees that add to your total cost of borrowing. Some of the fees to look for include:

  • Application fees - Some lenders charge a modest fee just to apply.

  • Origination fees - Typically 2-8% of the total loan amount, deducted from the funds before they are disbursed to you.

  • Late payment fees - Imposed if your payment is not received by the due date.

  • Prepayment penalties - Applies when you pay a loan off ahead of schedule. 

Not all lenders charge all of these fees for personal loans, but it's important to know what you'll pay before signing off on the loan paperwork. 

3. Longer loan term could cost more in interest

Choosing a longer loan term can lower your monthly payments when you use a personal loan to consolidate credit card debt. The longer you take to pay off the loan, however, the more interest you will pay overall. 

4. The risk of increasing your total debt

Using a personal loan to consolidate credit cards can work in your favor — if you're not using your cards to make new purchases. 

If you pay off your cards using the loan and then charge them up again, you're not improving your financial situation. In fact, you may just be creating a deeper debt hole that will be even harder to dig your way out of.

Alternatives to using a personal loan to pay off credit cards

Personal loans aren't the only way to pay off credit card debts. Here are other options to consider.  

Debt snowball

The debt snowball method is a popular way to pay off credit card bills. Here's how this method works:

  • List your debts from lowest balance to highest

  • Pay as much as you can to the smallest debt on the list each month, while paying the minimums to everything else

  • Once you pay off the first debt, roll its payment over to the next debt on the list

You continue snowballing payments until all your debts are gone. The debt snowball can be motivating if it helps you knock out the first few small debts quickly, even if they weren’t the most costly debts you had. 

0% balance transfer

Balance transfers allow you to move money from one credit card to another, ideally at a lower interest rate. Many credit card companies offer balance transfer cards that let you pay zero interest on transferred balances for a set period of time. Once that promotional period passes, you’ll pay the norma interest rate on any remaining balance. 

The upside is that you could save big on interest during the promotional period, especially if you're able to knock down the entire debt before the promotional period ends.   Most balance transfer cards charge a fee ranging from 3% to 5% of the balance. It’s common for the fee to equal 2-3 months’ interest charges on the amount you’re transferring. 

Debt relief

Debt relief simply refers to different solutions for handling debt. That can include:

  • Credit counseling

  • Debt management plans (DMPs)

  • Debt negotiation

A credit counselor can review your budget to help you come up with a plan for paying off all of your debt. They might recommend a debt management plan, in which you make one payment to your plan each month. The credit counselor then distributes it among your creditors. 

Debt management plans can save money on interest, but if you've fallen behind on bills and you're truly struggling, debt negotiation could be the better option. 

Debt negotiation, also referred to as debt settlement, simply means asking your creditors to accept less than what's owed and to cancel the remaining balance. That could help you to get out of debt much faster and save some money in the process. If you're interested in that option, it's important to work with a reputable debt relief company

Frequently Asked Questions

Is it cheaper to take out loans to pay off credit cards?

Using a loan to pay off credit cards could be cheaper if you're able to get a lower interest rate. However, choosing a longer repayment term or paying expensive fees for a personal loan could negate some of the savings. 

When is it a good time to take a loan to pay off credit cards?

The best time to take out a loan to pay off credit cards may be when you're ready to streamline payments, you’re committed to not using your cards to make new purchases, and you're able to qualify for the lowest rate possible. Shopping around to compare personal loan options can give you an idea of what loan terms you're likely to qualify for. Before you apply, shop around by getting prequalified with lenders who do a soft pull on your credit. That won’t hurt your credit score. When you apply, your credit score could drop by a few points.

Will getting a personal loan to pay off credit cards hurt my credit score?

Appying for a personal loan to consolidate credit cards can temporarily ding your credit score. The lender will do a hard inquiry into your credit prior to approving you for the loan. 

Using a personal loan to pay off credit cards could also hurt your score if you pay the loan late, while on-time payments can help your score. 

On the other hand, if you pay off revolving debt (credit cards) with installment debt (a personal loan), your credit utilization is likely to improve. Utilization is one of the most important factors in your score, so lowering it will cause your score to go up, assuming you’re doing well in the other factors that affect your credit.